Hospital mergers and acquisitions continue to increase at a rapid rate with precedent-setting deals occurring in 2018. Given that this a primary business strategy for a majority of healthcare organizations, this trend is expected to continue into 2019 and beyond. One of the many challenges that newly merged healthcare systems face is eliminating redundant services and surplus capacity. Realigning services and reallocating resources among multiple campuses requires a unique strategic, operations improvement, and facility planning process. The planning team needs to understand the market and patient population, look at alternate ways of allocating resources, and evaluate the impact on operational costs, before recommending investments in bricks and mortar. This article looks at opportunities for improving efficiency and eliminating surplus capacity, separating major issues from less important issues, and other key considerations.
UNDERSTANDING THE MARKET
The planning team first needs to understand the market and patient population served at each of the individual hospital campuses. For example, a different facility planning approach is required when two or more campuses share the same market versus when they have distinctly separate markets. Planning at the clinical service line level ― such as for obstetrics, pediatrics, cardiology, and cancer care ― is also required because some service lines may share the same market and others may not. For example, consolidating two obstetrics programs at a single location could negatively impact the health system’s market share for this service line if the new location is deemed inconvenient for the referring physicians and patients.
OPPORTUNITIES FOR IMPROVING EFFICIENCY AND ELIMINATING SURPLUS CAPACITY
Historically, hospitals have had a reputation for being inefficient with rigid, compartmentalized organization structures and inflexible employees. Departmental turf wars for space, staff, and equipment are still common. These problems only get worse when two hospitals try to merge their operations. However, the creation of a leaner, downsized, more nimble, bottom-line oriented business is commonly cited as the rationale for the merger.
Although there are many opportunities to improve efficiency and eliminate surplus capacity, the following key areas represent the most significant opportunities:
- Eliminating empty beds. Consolidating occupied beds into larger nursing units and closing or converting complete floors of beds to an alternate use can have some impact on operational costs. Conversion of some surplus acute care bed capacity for same-day stay patients or post-acute services may also be an option depending on the overall condition of the infrastructure and code compliance of the facility. However, the real operational cost savings occur when an entire hospital is closed or when 24-7 operation is discontinued — such as converting a hospital to an outpatient facility.
- Integrating and restructuring clinical services. Opportunities to reduce surplus capacity by integrating and restructuring clinical services include:
- Consolidating diagnostic and treatment services that require expensive equipment, unique space, and specialized staff thus reducing future capital investment and operational costs
- Identifying the lowest cost, most appropriate setting to deliver outpatient and chronic or recurring care
- Evaluating extended hours of operation ― in lieu of equipment acquisition and more space ― to further improve utilization of expensive resources and increase capacity
- Investigating the “center of excellence” or “institute” concept as an alternative to traditional organizational models
- Restructuring routine, high-volume, quick-turnaround testing to improve patient access and to cross-utilize staffing and space
- Consolidating physician practices. As more physician practices become part of larger specialty groups, there is an opportunity to reduce operating costs by sharing resources. Some opportunities include: sharing reception/registration, waiting space, and other patient and staff amenities; sharing of support staff thus reducing the need for offices and workstations; and sharing specialized staff and expensive treatment and special procedure rooms and diagnostic facilities. The number of exam rooms can also be reduced by improved utilization through time-sharing and planning more generic, flexible space.
- Reducing building support space. Many of today’s hospitals were designed with a chassis to support a much larger number of inpatient beds than are currently being occupied. Space for support services is commonly located in the basement or below-grade. Also, many traditional support services — materials management, food service, linen service — are now outsourced and a major portion of their space is located offsite. When two organizations merge, the surplus space increases further. Many multihospital systems have implemented the “mosaic” approach by designating specific campuses for consolidation of specific services, thus reducing the investment in duplicate and redundant resources. For example a single kitchen may be located at one site ― with the cook-chill system used to deliver food to the remaining sites ― and a single warehouse located at another site from which supplies are distributed. Specialty laboratory testing may also be consolidated at a single site while maintaining a much smaller and fully-automated rapid-response laboratory at each hospital.
NATURE ABHORS A VACUUM
When there is ample surplus space, hospital departments tend to metastasize into the space available whether or not all the space is needed. This may result in an exaggerated space allocation when the department is relocated to leased space or an alternate facility. For example, the new space may be oversized if it is based on the incremental need beyond the existing (already too large) space allocation.
SEPARATING MAJOR ISSUES FROM LESS IMPORTANT ISSUES
Paralysis often sets in when recently merged institutions begin planning to integrate or consolidate redundant services. Assuming that market dynamics and demographics have been carefully considered, the key is to quickly separate actual facility consolidation issues from non-issues. When the planning team considers the consolidation of two or more acute care hospitals at a single site, they should initially address the following questions:
- Are there contemporary inpatient nursing units in a modern physical plant with code-compliant, appropriately-sized patient rooms and adjoining toilet/shower facilities? What percent of the beds are in private patient rooms? How many total patient “rooms” are available? Are the beds configured to allow for efficient staffing patterns?
- Are there updated and adequately-sized surgical operating rooms and support space? What is the capacity (considering extended hours of operation)?
- Are there contemporary perinatal facilities and what is the capacity assuming varying operational models (e.g., single-room maternity model versus use of postpartum beds)?
- What is the size and number of specialty imaging procedure rooms and is the technology state-of-art (e.g., MRI, CT, interventional radiology/cardiology, radiation oncology)?
- What is the customer’s first impression of each facility? Is there convenient patient access, parking, and a welcoming entrance lobby?
- Is there room on the site for building or parking expansion? Are there other site expansion constraints such as zoning restrictions or adversarial neighbors?
- What is the amount, proximity, and ownership of specialty physician offices at each site, particularly if one site will potentially be abandoned?
- How much money will be required for immediate, short-term, and long-range infrastructure upgrading of the facilities? Are there code issues that must be addressed?
Less important issues that often are given more attention than warranted include outpatient services that do not involve large fixed equipment or require unique design requirements ― such as ultrasound, physical therapy, primary care clinics, and any department whose space is primarily administrative staff offices and workstations ― since these services can be readily moved into leased space on an interim or permanent basis.
POLITICAL, EMOTIONAL, EMOTIONAL, AND REGULATORY ISSUES
Consolidating healthcare facilities may disrupt deeply entrenched economic interests and involve a number of issues including: state regulatory concerns; community opposition and public relations problems; displaced workers, unions, and the economic impact on the community; and the impact on local philanthropy when a hospital becomes part of a larger health system. Abandoning facilities with new additions or recently renovated space can create emotional, political, and legal issues. For example, there may be covenants associated with buildings funded with donated money. Physician ownership of office space and diagnostic facilities on or near a hospital site to be abandoned further complicates the equation.
Despite the difficulties in consolidating two or more healthcare facilities to eliminate surplus capacity, the opportunities for cost savings are significant. Funds used to support surplus capacity could be deployed for a long list of alternate purposes including the eventual replacement of the core physical plants and technology of the surviving institutions.
This article is an update of a previous post.